United Online to Buy BlueLight Service

Internet: $8.4-million bid for Kmart's online access business and its 165,000 subscribers is seen as a bargain price.

Low-cost Internet service provider United Online Inc. won the bidding Friday for Kmart Corp.'s BlueLight.com Internet access business, solidifying its hold on the market for cut-rate connections to the Net.

The $8.4-million bid amounts to a blue-light special for Westlake Village-based United Online, operator of the NetZero and Juno brands, one analyst said.

"The deal seems like an intelligent move for United Online because it represents a cheap way to grab 165,000 subscribers," said Fred Moran, an analyst with Jefferies & Co. in New York.

The price, revealed in a filing with the U.S. Bankruptcy Court in Chicago, which is overseeing Kmart's Chapter 11 filing, works out to about $50 per subscriber. That's far less than the going rate of about $100 to $200 per ISP subscriber, Moran said.

The key to United Online's growth is to retain customers and capture new subscribers without overspending on marketing, and such a reasonably priced purchase is the best way to feed earnings, he said. Moran does not own shares in United Online, and his company does not do business with it.

United Online has about 3.1 million subscribers to its free service and an additional 1.7 million customers who pay $9.95 a month for an upgraded service. That's about half the price of offerings from larger rivals AOL Timer Warner Inc.'s America Online and Microsoft Corp.'s MSN.

BlueLight.com subscribers, who pay $8.95 a month, would maintain their e-mail addresses. They would boost the number of United Online's paying customers by 10%.

The sale is subject to approval by the Bankruptcy Court, which is expected to consider the matter by the end of the month, Kmart said.

Shares of United Online rose 72 cents to $10.97 in Nasdaq trading Friday. Kmart's shares rose 7 cents to 47 cents on the New York Stock Exchange.